Should I Buy Pet Insurance

I received this question recently and thought initially it was a slam dunk against purchasing pet insurance. However, the more I researched, I actually found myself weighing the potential benefits. In the end, I personally land against buying pet insurance and would likely steer you in that direction too if you’re only seeking a one word response.

If you want to step through the discussion in more detail, I’ll run through my end to end thought process below. You’ll want to tailor the discussion to your situation, but the steps below should prove a pretty comprehensive evaluation.

Should YOU buy pet insurance? Let’s find out.

Buying Pet Insurance – On the Clock

For starters, I’ll qualify my position regarding pets. I like pets and growing up we had several pets around the house. At various times we had dogs, cats, rabbits, fish, and even a turtle for a short time. At the time of this writing my wife and I care for cats we rescued as kittens. We had a “cat house” custom made that, frankly, cost more than I’d like to admit.

Further, I agree that pets offer companionship and also agree with studies that indicate pet owners are generally happier and healthier people.

Generally speaking, I like pets.

However, I am not a “pets are people too” kind of person. I actually find it sad when people claim to take better care of their pets than they do (or did) their own children, but that’s another matter.

I think this puts me pretty near the middle of the topic with no strong pet related biases influencing my decision. Now, let’s focus on the original question, should I buy pet insurance? To start, we’ll look at the most basic of component parts individually – Pets and Insurance.

Also, for the purposes of this discussion, we’re talking about family pets and not seeing eye dogs or other specialized animals.

What are Pets?

Simply put, pets are a luxury. They are not luxurious, like a yacht, but they represent mostly unnecessary acquisition decisions we make to appease or gratify ourselves. There is nothing in our society that compels us to acquire a pet. Sure, pets are living creatures and this raises the accountability associated with pet ownership, but they are not a requirement in the same way a home (shelter) or car (transportation often required for our jobs) might be.

That may sound cold but it is important to get to the ground floor of this topic. Some may feel as if they must have a pet in a way similar to how someone else may ‘have’ to own a big TV or the latest stereo equipment. It becomes an expression of who we are which is important, but is not actually a requirement.

To be clear, that is not to say we cannot, or even should not, love and care for our pets. But it is important to look at them in the appropriate context.

Pet Ownership is a Budget Decision

As with any purchase, or possession (yes, even pets), we should consider our ability to actually afford the item. That is part of our duty when making responsible decisions. This applies even when the animal is “free”, like when a neighbor is giving away puppies or kittens from a litter.

Your ability to afford a Pet extends well beyond the initial purchase price, again, even if free. Pets require food, routine shots, registration, grooming, planned and unplanned vet visits, etc. In some instances changes to your home environment are required – fencing, pens, additional maintenance for indoor animals, etc. Plus the toys and playthings and even “clothes” most owners want to bestow upon their pets.

Estimates put the annual US consumption on pet related products at over $50 BILLION. The evidence clearly points to this being an ongoing situation rather than a one-time event.

To me, this is an important part of the discussion, one not to be glossed over. Are we buying pets we cannot afford and then making secondary purchase decisions (pet insurance) to prop up the initial bad decision. While this is not an uncommon behavior, it is a path that carries us to nowhere we want to be.

What is Insurance?

It first is important to understand that Insurance is a defensive play, a defensive play against the risks that are a natural part of our daily lives. Will something happen to my car, home, health this week or month? How will this impact my financial health?

Hedging our bets, so to speak, through insurance to protect us and our possessions from such questions or risks is then the wise choice.

For example, significant risks can be mitigated through the purchase of insurance.

Auto insurance can protect against the costs of an accident or theft

Home insurance can protect against the costs of loss or damage

Health insurance can protect against the costs of prevention and treatment

Life Insurance can protect against the loss of income resulting from death

Note that it is the risk occurrence we are mitigating, not the risk we are eliminating. Bad things may still happen, but through appropriate mitigation (insurance) our level of financial preparation can be equal to the task.

What do we need to insure?

The key to most insurance purchases is the potential cost of loss vs. your ability to self-insure. Basically, you insure against losses that would be financially crippling. For example, a home is the most expensive purchase most will make in their life time. It is a purchase that is often financed over 15 or 30 years.

If your home burned to the ground tomorrow you would be faced with an immediate need to replace your most costly possession while still on the hook for the mortgage on the smoldering ashes. It is a financial loss too significant for most to assume alone, so you insure against it.

Cars and Health and Income (via Life Insurance), are all similar situations. You ensure against a financial loss you cannot afford to suffer.

In contrast, you assume full risk over losses you can afford to incur. I don’t buy an extended warranty on a TV because I can afford to replace or even live without it. In this case, I am basically self-insuring against the loss rather than spending money to have someone else share a portion of the risk.

The wealthier you become, the more options regarding self-insurance you have, but you probably never want to go entirely without certain types of insurance. Here’s a simple example to illustrate: A multi-millionaire may elect to forego the $500,000 Life Insurance policy because there is simply is no risk being mitigated. The estate will take care of the family better than the policy ever could.

So where does pet insurance factor into this?

It may be a long way back around to the original question, “should I buy pet insurance?”, but I consider the thought process important. Remove bias and predispositions by assessing each component part and then putting them back together.

Through this process your mileage may vary as there may not be a single incontrovertible universal truth.

For me, the answer – should I buy pet insurance? – is “No”. I don’t have pet insurance and would not consider it at this time. The logic I use unfolds like this:

A pet is a non-essential possession. A living possession that comes with unique responsibilities, but still a purchase decision I make based on my ability to afford the cost of ownership.

I agree to assume the costs associated with routine medical (cost of ownership) and a reasonable expense related to emergency or illness.

I place the financial security of my human family in higher regard than that of my cats. Sorry if that sounds cold, but not everything can be the top priority. An order must exist and as such, I will never be at risk of bankrupting a Vet bill.

Run the numbers – see below

At the same time, the case for Pet Insurance is increasingly compelling. Advances in veterinary sciences continue to increase the scope of services which may be applied to pets. Now medical services previously only available to humans are becoming available for pets – including radiation treatments and even transplants. Maladies previously fatal to our pets may now, with some cost, be alleviated.

So the answer for you may be different. Consider the following:

Are you “all in” on your pets?

Do you consider pets to be people too?

Would you not be able to say “no” to an expensive treatment (one that you know you probably could not afford) for your pet?

Would your resolve on item 3 falter in the face of crying kids and a vet confirming a full recovery?

If you answer “yes” to any of the above questions then perhaps you might want to consider pet insurance as a means of protecting you from yourself, as much as providing for your pet.

But even the decision to purchase pet insurance is only just a first step. What to look for and how to select the best pet policy are significant questions. Some providers are quick to identify pre-existing conditions which are not subject to coverage. In extreme examples, some conditions are branded as pre-existing based solely on the breed of dog. Others come with varying levels of deductible and exclusions.

All of that is important to understand even before the monthly cost is factored in.

How to shop for pet insurance?

As with any purchase of this type, the key to making the right choice is to do your homework. Research companies, research your pet breed, comparison shop, and ask LOTS of questions.

Example questions to address include the following:

Confirm state registration/certification

Understand monthly costs and what is included and excluded

How will these costs adjust as my pet ages?

What are the deductibles and copays? How are they applied?

Are there any Caps? What are they and how are they imposed – Per Incident Caps, Annual Caps, Lifetime Caps, other?

If per incident, how is one incident distinguished from another? Or, how are complications, relapse, and repeat distinguished for coverage purposes?

What ailments are specifically excluded? Are they prevalent with my breed?

Define pre-existing conditions

What is your reimbursement process and response SLAs?

Are there waiting periods?

Illness coverage or Accident coverage, or both? Your pet’s age could force this decision with some companies.

Can I get all of these responses in writing? Not simply sales materials that may or may not apply to your specific policy selection. You’ll want these details contained within your policy and you’ll want to review it closely prior to signing.

Once you’ve collected and compared responses across multiple Pet Insurance companies, it is reasonable to ask if this decision is still right for you and your situation. You may still value Pet Insurance on principle, but does the market over a product suited to the specifics of your case?

Still trending towards buying Pet Insurance as being the best decision? Great, now let’s run some numbers.

Calculate your expected annual costs (monthly premiums * 12), plus the out of pocket costs associated with an emergent care scenario. This would include primarily your deductible and any co-pays.

In a simplified example, assume your premiums are $50/month with a $250 deductible and 100% coverage after the deductible is met. You would need a single event totaling $850 each year ($50 * 12 + $250) to breakeven for a single pet.

Raise the deducible to $500 and lower the monthly premiums to $35 and your breakeven actually increases to $920 for a single pet. ($35 * 12 + $500)

Co-pays further complicate the math, while increasing the breakeven point, but you probably get the point.

It may be reasonable to think a single vet experience could equal or better the above figures but would you expect to face such an event every year and for each covered pet? Probably not. Might you be better off banking those funds into an emergency fund and self-insuring against such unexpected expenses? Probably so.

How to keep my pet safe?

So perhaps the fact finding and cost analysis has your reconsidering the pet insurance purchase decision but you still want to have some hedge against injury. Consider options for keeping your pet safe. Sometimes that ounce of prevention really is worth a pound’s cure.

Is indoor an option? Inside pets typically face a decreased risk of injury